(Reuters) – Inflation will be temporarily distorted this spring as the U.S. economy works through imbalances caused by the pandemic but the pressures should be short-lived and should not lead to a pullback in monetary policy, Boston Federal Reserve Bank President Eric Rosengren said on Wednesday.
“Despite the ebbs and flows of the data, inflation is expected to remain close to 2 percent over the forecast horizon,” Rosengren said in remarks prepared for a virtual event organized by Boston College. “This does seem to me to be the most likely outcome, which should allow monetary policymakers to be patient in removing accommodation, until more progress in the labor market has occurred.”
Rosengren said “significant slack remains in the economy” and that unemployment was still elevated in March when compared to before the pandemic. Millions of Americans have left the labor force and the labor force participation rate, which measures the share of people who are either working or looking for work, is “depressed,” he said.
Fed policymakers agreed last week to leave interest rates near zero and to continue purchasing $120 billion a month in bonds until there is “substantial further progress” toward the Fed’s goals for inflation and maximum employment.
The outlook for the U.S. economy is strong thanks to health improvements and robust fiscal support, but under the Fed’s new framework, officials are going to wait until that stronger growth materializes before they make changes to monetary policy, Rosengren said.
“This implies that current policy will remain accommodative until the labor market can consistently help deliver on the Fed’s 2 percent inflation goal,” Rosengren said.
(Reporting by Jonnelle Marte)
